Analysis: Ashish Pherwani on when it’s right for a channel to pull the plug

13 Apr,2012

By Ashish Pherwani

 

Rule of three

The media business is largely governed by the ‘rule of three’ i.e. companies which are the top three or four players in a genre, or geography, tend to be profitable, while the rest tend to make losses in the long run.

 

Accordingly, when a TV channel is unable to make it to the top of its segment for a long period of time, chances are it would have been hemorrhaging money for its owners, and that situation cannot last indefinitely.  Eventually, investors will pull the plug.

 

Expensive programs as drivers

TV channels which garner a majority of their viewership from reality TV shows and expensive films, and not from lower cost fiction programs, are also susceptible to being shut down in the medium to long term.

 

Most large channels do not recover their direct variable reality content production and distribution costs through advertisements alone, but use such expensive programs as drivers to build channel loyalty and viewership for lower-cost fiction programs.  If this strategy does not work, and fiction shows continue to under-perform on a TV channel, the chances of broadcasters continuing the channel are remote even in the medium term.

 

‘Overhauls’ and ‘Makeovers’

Over the last decade or so, most unsuccessful channels which have tried ‘overhauls’ and ‘makeovers’ that have failed to achieve their objectives within six to eight months, have eventually shut down their operations.  There are a few exceptions where channels are politically motivated, treated as marketing tools for large business houses, or those who believe they could build channel valuations for a profitable exit, but such companies are few and far between, and the recession of 2009 and the slowdown in 2011-12 have weeded out most of these.

 

Foreign investors prefer less risky ventures

In the case of foreign broadcasters enteringIndia, those with deep pockets and who believe in theIndiastory, which I certainly believe in, too, tend to stay invested inIndia.  But some foreign broadcasters prefer a less risky approach than creation of high-cost content.

 

They prefer to exploit their existing global content library inIndia. Accordingly, more cautious and risk-averse foreign investors wouldn’t continue to fund under-performing TV channels indefinitely, and would rather take the less risky route.

 

Viewership, the only asset

To conclude, the only asset a channel has is viewership.  Channels which operate without a robust management team, a unique market position, and a defined target audience, won’t be able to garner sustained and loyal viewership.

 

If channel management is able to make these three aspects fit seamlessly together, chances are the channel will succeed as a business, else, it would make business sense to pull the plug!

 

Ashish Pherwani is Associate Director, Advisory Services, Ernst & Young Private Limited

 

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